Thursday, April 5, 2012

Australia's government-owned nuclear and scientific agency been has criticised for unfairly using its public ownership to win a contract to supply nuclear medicine to hospitals in New South Wales.

A report by the Productivity Commission has found that the Australian Nuclear Science & Technology Organisation (ANSTO) breached some rules on competitive neutrality when it outbid a small private company, Cyclopharm Limited, in a tender process.

After a nine month investigation into the awarding of the contract, the Commission's Competitive Neutrality Complaints Office found ANSTO breached regulations, suggesting it leveraged the benefits of public ownership in its tender submission.

Cyclopharm referred the complaint to the Productivity Commission last year claiming that ANSTO's subsidiary Petnet had failed to comply with rules on competitive neutrality.

Cyclopharm said the prices included in the Petnet tender did not reflect the true costs and its forecast profits were not commercially acceptable.

In the report released yesterday, the Productivity Commission made two key findings in favour of Cyclopharm's complaint that competition rules were broken.

"Forecasts over ten and 15 years demonstrate that Petnet Australia's operations are unlikely to achieve a commercial rate of return on equity over either time period. This represents an ex ante breach of competitive neutrality policy," the report says.

"To comply with with competitive neutrality policy it would need to adjust Petnet's business model such that it can be expected to achieve a commercial rate of return that reflects its risk profile of the full investment."

Cyclopharm's managing director James McBrayer has welcomed the findings and has called for a shakeup up at ANSTO to ensure small companies are able to compete on a level playing field with government.

"We are very pleased with the outcome and feeling quite vindicated through all our efforts over the past nine months," Mr McBrayer told AM.

"We would expect that the New South Wales Department of Health will rescind the tender based on the fact that ANSTO was supposed to be in compliance with competitive neutrality which they are clearly not.

"We would be seeking that the New South Wales Department of Health re-let the tender as we have been disadvantaged from day one. We would expect that the department would do the right thing in awarding us the tender while the review process is underway."

Mr McBrayer called on the federal government to call ANSTO to account to ensure it plays by the rules.

"ANSTO gets about $165 million of taxpayer's funds each year. ANSTO's role is to support Australian industry in this particular area instead of preventing it from happening," Mr McBrayer said.

ANSTO has defended its conduct in the tender process but says it will review the Productivity Commission's findings.

"ANSTO will now carefully consider the report, its recommendations, and the need to ensure continued supply of radiopharmaceuticals to Australian patients," a spokesman said.

“That said, ANSTO notes that Royal Prince Alfred Hospital produces and sells FDG at significantly lower prices than both PETNET and Cyclopharm."

"The view of the directors, or the majority view of the directors, is that that's more of a political aspiration than an economic one," Mr Colvin said.

"Any more burdens to business at this stage of the cycle would be regarded I think as a difficult thing for business and probably counter-productive."

Balancing act

Mr Colvin said that while many company directors would normally urge a budget surplus, most agree the time is not right to make spending cuts that could potentially damage the economy.

"My surmise would be that [directors] would think that a budget surplus is the right thing to do, but trying to do it all at once or in a very quick manner rather than staggered over time, can be hurtful in the short term," Mr Colvin said.

"All businesses have to be careful about paying off debt, making sure the shareholders are looked after, making sure they can spend in terms of investment and what have you.

"It's a balancing act all the time for businesses, so I think they would assume that the balancing act in all those areas is a better way to go rather than sort of just hammering away on a debt level. "

Mr Colvin said that the government would be better focused on issues such as infrastructure, health, education, business regulation and industrial relations.

"Industrial relations was ranked as a number one concern by 20 per cent of those surveyed directors," he said.

"Ninety per cent of directors, which is a very high number, said that infrastructure spending was too low."

The index also says that around 90 per cent of directors still believe the performance of the Federal Government is continuing to hurt consumer confidence.

"Obviously it's negatively impacting on people's willingness to spend and get the economy moving outside the resources and a few other related industries," Mr Colvin said.

Carbon tax

Mr Colvin also identified the carbon tax as an issue affecting business, though for many it was no longer a primary concern.

"Significantly fewer directors, at 16 per cent in this survey down from 31 per cent in November, identified the carbon tax as one of the main economic challenges facing business, although more than 60 per cent of directors still believe that the announcement and the legislation of the carbon tax will impact their business negatively," he said.

"That's pretty much unchanged from the last survey which had about 63 per cent.

"So 60 per cent of directors still believe the announcement of legislation of the carbon tax will impact our business negatively."

Subscribe to Main Street

About Peter Ryan

is the Australian Broadcasting Corporation's Business Editor, contributing to a range of ABC News programs including the flagship radio current affairs program AM and ABC News 24. Peter developed ABC business programs including Lateline Business and Business Today. He was the ABC's Washington Bureau Chief in the 1990s and has served in management positions including Head of TV News & Current Affairs in Melbourne.